Auctioning has been an accepted method for selling products and services since the early 1700's. Since that time, traditional auctions have been conducted in auction houses where bidders would gather and compete face-to-face for the purchase of a particular item. Such traditional auctions typically offer luxury items or antiques, whose prices command a large profit. Thus, only those persons who can afford such “high ticket” items participate in traditional auctions. Also, since most auction houses are located in large cities such as London or New York, traditional auctions usually attract only those persons living near or having the means to travel to these auction houses. Such auctions are further limited to those people who are willing to pay the price of admission to the auction house.
With the development of world-wide communications systems, auctions have evolved to include bidding via telephone and video-conferencing, thus overcoming the barrier imposed by travel. However, these auctions are still typically limited to high ticket items, thus attracting only a small proportion of the general public.
In recent years, and particularly with the advent of the Internet, auctioning has enjoyed increased attention and participation from the population at large. This is demonstrated by the success of such on-line Internet auctioning companies as EBAY and ONLINE.COM. These Internet auction companies allow for items of any value to be placed for bid on their web sites. Each item submitted for sale is assigned an auction session, which includes a starting time (or opening) and a closing time. Bids are then accepted electronically as long as the auction session is open. At the close of the auction session, the item is awarded to the highest bidder.
Although on-line auctioning has succeeded in attracting large-scale, daily participation in auctioning, the Internet environment has inadvertently eliminated some of the benefits enjoyed by traditional auctioning. For instance, the competitive bidding generated by face-to-face competition has been hampered, since on-line bidders usually are remotely located from each other. Furthermore, because the bidders in an on-line auction are not physically present at the auction site, they may not become instantly aware of higher bids submitted by other subsequent bidders.
Another drawback to on-line auctioning is the frequent submission of unreasonably low bids during an auction session. These bids are typically submitted by bidders who are not serious about obtaining the item being auctioned or who anticipate that no reasonable bids will be submitted. Such bidding behavior is a waste of an auctioneer's resources, since such unreasonable bids are rarely accepted. However, since there is no face-to-face interaction among on-line bidders, there is little incentive for a bidder to refrain from submitting unreasonably low bids.
Thus, a need exists to encourage competitive bidding and to discourage unreasonable bid submissions in an on-line auction environment.